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BAE Agrees to $450m Settlement; Gets Off Lightly?

Global Glimpses | February 8, 2010



British arms company BAE Systems has finally closed the book on a long-running investigation into alleged bribery and corruption, with an agreement to pay fines in the U.K. and United States totaling nearly $450 million.





The U.K. Serious Fraud Office claimed the settlement as “a groundbreaking global agreement” and a “pragmatic end,” but the deal sparked further controversy as soon as it was announced.





The U.K. end of the deal will see the company plead guilty in court to an offense under section 221 of the Companies Act of 1985 of failing to keep reasonably accurate accounting records in relation to its activities in Tanzania. It will pay a fine of up to £30 million ($47 million)—and if the court issues a lower fine it will donate the money “for the benefit of the people of Tanzania.”





The U.S. part of the settlement, agreed upon with the Department of Justice, is far tougher. If the courts approve, the company will plead guilty to one charge of conspiring to make false statements to the U.S. Government. It will pay a fine of $400 million and make additional commitments concerning its ongoing compliance.





Criminal charges filed by the DoJ said BAE had made false statements about establishing an effective anti-corruption compliance program to ensure conformance with the Foreign Corrupt Practices Act (FCPA) and that it “paid hundreds of millions of dollars in undisclosed commission payments in violation of U.S. export control law.”





The United States' deal covers BAE’s activities in several countries, including Saudi Arabia. The SFO dropped its own investigation into the company’s Saudi Arabian arms deals in 2006 under pressure from the U.K. government, which claimed it would damage the national interest. The SFO tried to reach a plea deal with BAE last year, but talks broke down and it asked for government permission to push ahead with a prosecution.





Campaign Against Arms Trade and The Corner House, two pressure groups, said they were “shocked and angered” by a deal in which the company was only admitting "an accounting misdemeanor."





“As a result of the settlement there will be no opportunity to discover the truth behind alleged bribery and corruption in the many BAE deals that were under investigation,” they said in a joint statement. “The U.K. penalty of £30 million is a tiny price for BAE to pay to see the end of the investigations that had been gathering evidence for years and were coming to a head.”





Earlier in the week the SFO announced its first criminal charges following its BAE investigations. These related to Austrian aristocrat Count Alfons Mensdorff-Pouilly. But within hours of the settlement being announced, the SFO said it had dropped the charges because they were no longer in the public interest.





SFO Director Richard Alderman said he was "very pleased” with the global BAE settlement: “This is a first, and it brings a pragmatic end to a long-running and wide-ranging investigation.”





BAE issued a statement from Chairman Dick Olver giving more detail about exactly what it was going to admit in court.





Regarding the U.S. end of the deal, he said the company had breached a commitment in 2000 it gave to the U.S. government that it “would establish and comply with defined U.S. regulatory requirements within a certain period.” He said it “subsequently failed to honor this commitment or to disclose its shortcomings.”





Regarding the U.K. deal, Olver said BAE made commission payments to a marketing adviser in connection with the sale of a radar system to Tanzania in 1999 “and failed to accurately record such payments in its accounting records.” It also “failed to scrutinize these records adequately to ensure that they were reasonably accurate and permitted them to remain uncorrected,” he said.




Oliver added, "The company very much regrets and accepts full responsibility for these past shortcomings."